3 Ways Wall Street Banks Are Using AI to Increase Profitability

VaselineSeptember 7, 2024

0 5 minutes read

3 Ways Wall Street Banks Are Using AI to Increase Profitability

Big banks are jumping headfirst into the AI race. Over the past year, the biggest names on Wall Street — including Goldman Sachs, Bank of America, Morgan Stanley, Wells Fargo to JPMorgan Chase — have ramped up their generative AI efforts to boost profits. Some are striking deals and partnerships to get you there fast. All are hiring specialized talent and creating new technologies to transform their once stodgy businesses. The game is still early innings, but the stakes are high. In his annual letter to shareholders, JPMorgan CEO Jamie Dimon compared artificial intelligence to “the printing press, the steam engine, electricity, the computer and the Internet.” Banks that can do well should increase productivity and lower operating costs – both of which would improve their bottom line. In fact, AI adoption has the potential to increase bank profits by as much as $170 billion, or 9 percent, to more than $1.8 trillion by fiscal 2028, according to research by Citi analysts. Early-stage generative AI use cases are often to “grow your staff to be faster, stronger and better,” said Alexandra Mousavizadeh, co-CEO and co-founder of AI and insights benchmarking platform Evident Insights. “Over the next 12 to 18 to 24 months, I think we’ll see (generative AI) move along the maturity journey, moving from internal use cases that are put into production (to more) external use testing. cases”. Companies are just beginning to understand the promise of this technology. After all, it wasn’t until the viral launch of ChatGPT in late 2022 that the world outside of Silicon Valley woke up to the promise of generative AI. OpenAI’s ChatGPT, backed by Microsoft and enabled by Nvidia chips, has sparked a merger among investors in anything AI. The AI trade has also pushed corporate boardrooms in three ways: find use cases for the technology, establish partnerships to enable it, and hire specialized employees to build and support it. MS YTD mountain Morgan Stanley YTD AI use cases for key businesses Morgan Stanley was among the first on Wall Street to publicly adopt the technology, unveiling two AI assistants for financial advisors powered by OpenAI. Launched in September 2023, AI Assistant @ Morgan Stanley provides advisers and their staff with quick answers to market questions, investment recommendations and various internal processes. It aims to free employees from administrative and research tasks to engage more with their customers. Morgan Stanley launched another assistant this summer, called Debrief, which uses artificial intelligence to take notes on behalf of financial advisers in meetings with their clients. The tool can summarize key discussion topics and even draft follow-up emails. “Our immediate focus is on using artificial intelligence to increase the time our employees spend with customers. This means using artificial intelligence to reduce time-consuming tasks such as answering emails, preparing for client meetings, finding information and analyzing data,” said Jeff McMillan. head of firm-wide AI for Morgan Stanley. He made the comments in an emailed statement to CNBC last week. “By freeing up that time, our employees can focus more on building relationships and innovating.” In the long term, artificial intelligence could help Morgan Stanley’s wealth business move closer to achieving management’s goal of more than $10 trillion in client assets. In July, the firm reported $7.2 trillion in client assets. To be sure, McMillan said in June that it will take at least a year to determine whether the technology increases adviser productivity. If it does, that would be welcome news for shareholders after Morgan Stanley’s wealth segment missed analysts’ second-quarter earnings expectations. WFC YTD mountain Wells Fargo YTD It’s not just Morgan Stanley. Our other bank, Wells Fargo, has its own AI virtual assistant. Called Fargo, it helps retail customers get answers to their banking questions and perform tasks like activating and deactivating debit cards, checking credit limits and providing transaction details. Fargo, powered by Google Cloud’s artificial intelligence, launched in March 2023. For a large money-center bank like Wells Fargo — one that has historically catered to Main Street — Fargo’s assistant could bolster its biggest segment of the bank’s reporting. The consumer, banking and lending unit accounted for about 43% of the company’s $20.69 billion in revenue in the second quarter. Striking AI Offers, Partnerships None of this would be possible without partnerships. Big banks have turned to startups and tech giants alike for access to their large language models (LLMs) to build their own AI products. In addition to Morgan Stanley’s OpenAI deal and Wells Fargo’s ties to Google, Deutsche Bank also partnered with club name Nvidia in 2022 to help develop fraud protection apps. BNP Paribas announced on July 10 an agreement with Mistral AI – often seen as a European alternative to OpenAI – to integrate the company’s LLMs into its customer services, sales and IT businesses. Soon after, TD Bank Group signed an agreement with Canadian AI unicorn Cohere to use its LLM suite as well. “We’re wary of these (offers) because that means they’re building into a lot of that capacity,” Evident’s Mousavizadeh said. Big AI Hiring for Top Wall Street Firms Banks have also had to make big hires to fulfill their AI dreams — poaching groups of data scientists, data engineers , machine learning engineers, software developers, model risk analysts, policy and governance managers. Despite layoffs in the banking industry, AI talent at banks has grown by 9% over the past six months, according to July data from Evident , which tracks 50 of the world’s largest banks. This was double the growth rate seen in the total number of employees in the sector. Mousavizadeh said one of the main “characteristics of AI-leading banks is that they never stop hiring. The leading banks are the ones (those) hiring the most AI talent”. In July, Wells Fargo named Tracy Kerrins its new head of consumer technology to oversee the company’s new generative AI team. And Morgan Stanley’s McMillan was promoted to head of AI in March after serving as chief technology officer in the wealth division. He helped oversee Morgan Stanley’s OpenAI-related projects. JPMorgan also last year appointed Teresa Heitsenrether as head of data and analytics in charge of AI adoption. Conclusion The more we see these firms spend and invest in AI talent, the more serious they seem to be about the future of the emerging technology. We don’t expect these third-party partnerships, new use cases, and tons of hiring to create exponential profits overnight. However, as long as those costs don’t outweigh the return on investment (ROI), we’re happy with Wells Fargo and Morgan Stanley’s moves to innovate. “We are very much at the foot of this and will see much more ROI generated from AI use cases in 2025,” Mousavizadeh said. “But I think you’ll see a real tipping point in 2026.” (Jim Cramer’s Charitable Trust is long NVDA, WFC, GOOGL, MSFT, MS. See a full list of stocks here.) As a subscriber to the CNBC Investment Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust portfolio. 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Pedestrians walk on Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., Tuesday, Aug. 27, 2024.

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Big banks are jumping headfirst into the AI race.

VaselineSeptember 7, 2024

0 5 minutes read

Vaseline

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